RBC Europe Limited

EQUITY RESEARCH
Kamran Hossain (Analyst) Gordon Aitken, FIA (Analyst)
+44 20 7029 0847 +44 20 7002 2633
kamran.hossain@rbccm.com gordon.aitken@rbccm.com
Anthony Yang (Associate) James Pearse (Analyst)
+44 20 7002 2858 +44 20 7653 4894
anthony.yang@rbccm.com james.pearse@rbccm.com

Sector: Insurance
December 11, 2019

Beazley PLC Outperform (prev: Top Pick)

Taking a more cautious view on 2020 - move to LSE: BEZ; GBp 528.00
Outperform from Top Pick Price Target GBp 600 ↓ 650
Our view: With social inflation issues likely to persist in 2020, we expect WHAT'S INSIDE
Beazley to adopt a conservative approach to reserving. We now take a
Rating/Risk Change Price Target Change
more cautious view on the combined ratio for 2020E with a reduced
In-Depth Report Est. Change
contribution from reserve releases. We continue to like the footprint of
the company but given near term pressures we move our rating from Top Preview News Analysis
Pick to Outperform. PT to 600p (prev 650p). Scenario Analysis*
Key points: Downside Current Price Upside
We expect social inflation issues to continue into 2020 Scenario Price Target Scenario

Changes in plaintiff bar behaviour known as social inflation have led to an 350.00 528.00 600.00 700.00
increase in claims costs in some longer tail lines of business in the US. We 31% 16% 35%

expect this trend to persist through 2020 with little on the agenda to halt *Implied Total Returns

this for now. As a result, we expect to see elevated claims costs continue Key Statistics
in 2020. Shares O/S (MM): 523.1 Market Cap (MM): 2,762
Dividend: 12.40 Yield: 2.3%
BVPS: 301.60 P/BVPS: 2.31x
We expect Beazley to be cautious in its approach Tangible BVPS: 278.60 Avg. Daily Volume: 1,565,400
ROE: 13.3%
Beazley has a greater exposure than most to US liability lines via its Market Cap in GBP
Specialty lines division which made up more than half of premiums in
2018. The company has an excellent track record in this unit which has RBC Estimates
been driven by superior risk selection and market insight in our view along FY Dec 2018A 2019E 2020E 2021E
with a highly diversified portfolio of risks. Despite this, we expect that BVPS Diluted 280.00 301.60 335.70 383.80
Beazley will continue to book very conservative loss picks in its specialty Prev. 352.60 406.20
P/BVPS 2.47x 2.30x 2.06x 1.80x
business in 2020 as claims uncertainty persists. Experience shows us that
TBVPS 256.00 278.60 312.70 360.80
the company adopted a similar position following the financial crisis, Prev. 329.70 383.20
loading its Specialty lines loss picks due to an expected pick up in claims P/TBVPS 2.7x 2.5x 2.2x 1.9x
which ultimately proved to be highly prudent. ROE 4.6% 13.3% 15.4% 19.1%
Prev. 20.1% 19.9%
We include more caution in our 2020E combined ratio estimate EPS, Ops Diluted 13.00 38.00 48.00 68.00
We expect Beazley to be cautious in its approach to reserve recognition in Prev. 38.10 64.90 74.40
P/E 53.3x 18.2x 14.4x 10.2x
2020 again in its specialty business. In addition, we expect the company
will have some work to do in getting its reserve buffer back towards All market data in GBp; all financial data in USD; dividends paid in GBp.

the middle of the 5-10% range above actuarial estimate. As a result, we

move our 2020E combined ratio to 94% which compares to the 93% level
that the company talked about on a normalised basis at the beginning of
2019E. The company is well placed to take advantage of rising prices that
have now spilled over into longer tail lines but we are unlikely to see the
full benefit of these increases emerging until 2021/22.

Moving to Outperform from Top Pick

We continue to view Beazley as an attractive business but given the
potential social inflation issues that we expect to continue in 2020, we
reduce our rating from Top Pick to Outperform. We update our estimates
moving our 2020E book value estimate down 4.8%, with our 2021E book
value reducing 4.9% as a result of our combined ratio assumption changes.
We move our price target from 650p to 600p.

Disseminated: Dec 11, 2019 00:15ET; Produced: Dec 10, 2019 17:36ET Priced as of prior trading day's market close, EST (unless otherwise noted).
For Required Non-U.S. Analyst and Conflicts Disclosures, see page 14.
saurabh@softbank.com Saurabh Jalan 02/04/20 09:43:47 AM Softbank Inc.
 Insurance
Beazley PLC

Target/Upside/Downside Scenarios Investment summary

• Highest exposure to fast-growing cyber insurance market.
Exhibit 1: Beazley PLC
Beazley has the highest exposure as a percentage of
125 Weeks 20JUL17 - 10DEC19
UPSIDE
premiums (15% in 2018) in our coverage universe to the
650 700.00
625 growing cyber insurance market. The company has a strong
600 TARGET
575
600.00
track record in this line, with the Beazley Breach Response
550
CURRENT 528.00
aimed at SME businesses having strong success since its
525

500
launch in 2009. Although many have concerns about the
475 potential for systemic risk in cyber insurance, Beazley has
450 strict reinsurance limits and strong risk management, which
425 DOWNSIDE 350.00 mean that it can limit any downside whilst still capturing
20m
15m
the upside of strong profitability. We still believe that the
10m
5m US market has the greatest near-term growth potential, but
2017 2018 2019
J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D Dec 2020 we also expect to see the European market begin to take off
BEZ LN Rel. FT ALL SHARE INDEX MA 40 weeks following the introduction of the General Data Protection
Source: Bloomberg and RBC Capital Markets estimates for Upside/Downside/Target
Regulation in mid-2018.
Price target/base case • Differentiated business mix with strong growth potential
We derive our price target of 600p by applying a 2.3x book backed by strong track record. Beazley’s business mix
value multiple on the 2020E book value per share translated is relatively well protected from the surplus capital that
at the current USD:GBP exchange rate. Our 2.3x book value plagues the reinsurance industry. We view specialty lines
multiple is based on historical trading multiple of the company of business (more than 56% of premium in 2018) as more
and the sector as well as considerations of future growth of protected, because they are written based on expertise and
the company and the scarcity value attached to the Lloyd’s bespoke claims history and data rather than solely on the
insurers. use of models as can be the case in reinsurance. Beazley
has an excellent underwriting track record, and looking
Upside scenario ahead, we see plenty of opportunities for Beazley to grow
In our upside scenario of 700p, we assume that Specialty its portfolio with International Specialty (excl. US) being an
improves faster than we estimate, leading to a combined ratio area of particular focus in the coming years.
of 90% by 2020E in that segment. In addition, we assume that • Downside limited somewhat due to active specialty
Beazley is able to improve overall margins by more efficient insurance M&A environment. Beazley is a fast-growing,
reinsurance purchasing and can produce an 87% combined high ROE business with a strong track record in attractive
ratio overall. business lines. As a result, we believe the company would
be an ideal M&A target for many larger players in the
Downside scenario market. What could put acquirers off for now is valuation,
In our downside scenario of 350p, we assume that Beazley in our view; therefore, we believe if Beazley were to de-
experiences reserve deterioration as a result of under- rate substantially there would be a higher likelihood of an
reserving in its US Specialty Lines business. In addition, we approach for the company.
assume that Beazley experiences a higher-than-normal level • Risks to our thesis include negative reserve development,
of catastrophe losses compared to its peers. any emergence of systemic cyber claims in the US not
covered by reinsurance and larger catastrophe losses
compared to peers.
• Key potential catalysts include maintenance of the
combined ratio close to the 90% longer term average level,
any increases in US yields and the announcement of special
dividends.

December 11, 2019 Kamran Hossain, +44 20 7029 0847; kamran.hossain@rbccm.com 2

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 Insurance
Beazley PLC

We expect social inflation to continue in 2020

 Rising levels of social inflation impacted results in 2019, driven by changes in plaintiff bar
behaviour. Commercial auto and D&O lines were most impacted.
 Beazley has already taken action and adopted a more cautious approach at their 9M19
statements. This action is on top of earlier more cautious loss picks taken for the year in
affected lines.
 We do not see a clear end in sight for the social inflation trend. However, we are happy to
trust the track records of companies that have acted conservatively in the past.

Rising levels of social inflation impacted the sector in 2019

One of the major issues that has impacted the specialty lines sector during 2019 has been the
impact of a phenomenon known as ‘social inflation’.

Social inflation itself is a description of changes in the tort system which have led to increasing
claims costs in US liability insurance. According to Swiss Re, there is mounting evidence of
increasing levels of legal involvement in claims which has both prolonged the claims
development pattern but has also led to a pick up in claims severity. Exhibit 2 and 3 below
highlight some of these trends.

Increasing litigation finance has also been a driver with a better funded plaintiff bar has been
driven by increased levels of litigation funding.

Exhibit 2: Average size of large tort verdicts has been rising Exhibit 3: Record level of securities class action filings recently
250
All other filings
60 223
Credit crisis filings
204 199
Median verdict value of top 50 US

198
200 Chinese reverse merger filings 189
Number of class action filings

45 ICO/Cryptocurrency filings
96
tort verdicts ($m)

M&A filings 1997 - 2018 semi- 151 72

91
150 annual average 91
Total (106) 102
120
30 110 57
103
94 94 97 28 8
100 87 90 90 17
83 82 27 78
75 6 17
72 21 22 8 5
7 64 7 8
15 36
15
13 5
24
7
127 123
50 8 105 107
93 92 94
81 84 79 82
74 66 68
63 64 64 55
44 49 47
0
0
2014 2015 2016 2017 2018
1H09
2H09
1H10
2H10
1H11
2H11
1H12
2H12
1H13
2H13
1H14
2H14
1H15
2H15
1H16
2H16
1H17
2H17
1H18
2H18
1H19
Source: Swiss Re, RBC Capital Markets Source: Cornerstone Research, RBC Capital Markets

Commercial auto and D&O most impacted for now

The key areas that are being impacted are in commercial auto business where both claims
frequency and severity have both risen. And also Directors and Officers insurance where
securities class actions have increased substantially in recent years as shown in exhibit 3 above.

This marks a departure from the relatively benign loss trends that had been observed from the
mid 2000s onwards.

December 11, 2019 Kamran Hossain, +44 20 7029 0847; kamran.hossain@rbccm.com 3

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 Insurance
Beazley PLC

Exhibit 4: Litigation finance has expanded, driving lawsuit Exhibit 5: Attitudes of the US public and jurors have become
frequency more critical

No. Issue No. Issue

Large corporates and law firms increasingly use third-party capital 72% of jurors believe that if a case makes it to the courtroom, it
1 1
when pursuing multi-million-dollar lawsuits. must have some merit.

Funds investing in litigation are raising sizeable amounts (c.$9bn 42% of jurors would decide a case based not on the law but on
2 2
currently committed according to Swiss Re Institute). what they believe is fair.

Among US law firms, use of litigation funding increased by >400% 64% of the public in the US has a negative perception of large
3 3
between 2013 and 2017, and a further ~20% in 2018. corporations.

Source: Swiss Re, RBC Capital Markets Source: Swiss Re, RBC Capital Markets

Within the Lloyd’s market we have already seen some action

The Lloyd’s market overall wrote around 29% of premiums from casualty and motor classes in
2018. Based on our knowledge, the majority of motor business written within Lloyd’s is UK
focused and is a mixture of both UK specialty motor and UK commercial motor neither of which
will be impacted by these trends.

Exhibit 6: 2018 premium mix by business lines

Beazley Hiscox Lancashire
Marine and
Global energy Marine
Cyber & casualty 5% Aviation 5%
executive 5% 5%
Specialty
lines risk
Specialty Small
29% 27%
11% commercial Energy
34% 16% Lloyd's
40%
Art and
private
client
11%
Marine
Reinsurance 11%
8%
Property
PAC 13% Reinsurance
Property
9% 21% Property
16%
34%

Source: Company reports, RBC Capital Markets

Note: Hiscox - the premium mix is calculated based on total Group controlled premium

December 11, 2019 Kamran Hossain, +44 20 7029 0847; kamran.hossain@rbccm.com 4

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 Insurance
Beazley PLC

We expect Beazley to be cautious in its approach in 2020

 Beazley has a greater exposure than most to US liability lines via its Specialty lines and
CyEx divisions which made up 56% of premiums in 2018. The company has an excellent
track record in this unit which has been driven by superior risk selection and market
insight in our view along with a highly diversified portfolio of risks.
 Despite this, we expect that Beazley will continue to book very conservative loss picks in
its specialty business in 2020 as claims uncertainty persists. Experience shows us that the
company adopted a similar position following the financial crisis, loading its Specialty lines
loss picks due to an expected pick up in claims that ultimately proved to be highly prudent.
 In addition, we expect the company will have some work to do in getting its reserve buffer
back towards the middle of the 5-10% range above actuarial estimate. As a result, we
move our 2020E combined ratio to 94% which compares to the 93% level that the
company talked about on a normalised basis at the beginning of 2019E.
 The company is well placed to take advantage of rising prices that have now spilled over
into longer tail lines but we are unlikely to see the full benefit of these increases emerging
until 2021/22.

Beazley has a high exposure to liability lines via its specialty lines division
The company has a higher exposure to US liability exposed lines via its Specialty and CyEx
divisions. In total these two divisions made up 56% of premiums in 2018. If we strip out the
cyber business, we estimate that liability exposed classes make up around 40% of Beazley’s
top line.

Exhibit 7: Split of business by premium - 2018

Source: Beazley, RBC Capital Markets

However, the company has a diversified portfolio

The last time the company disclosed a full breakdown was at the end of 2018 but we are
confident that the company has a diverse mix of business with only limited exposure to the
classes that have been seeing a particular spike in claims trends.

December 11, 2019 Kamran Hossain, +44 20 7029 0847; kamran.hossain@rbccm.com 5

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 Insurance
Beazley PLC

Exhibit 8: Business mix within Specialty

Technology, media and business services

3%
4%
Management liability

12% 28% Small business

Professions

Healthcare
15% Treaty

International financial lines

19%
Crime
17%
Market facilities

Source: Beazley, RBC Capital Markets

Note: The business mix is based on 2018 premium, and includes Cyber & Executive risk

We saw a cautious approach taken at Q319 on this issue

During the 9M19 reporting season, we saw both Hiscox and Beazley take a more conservative
approach to this part of the business.

Hiscox – 4.11.2019 – Q3 19 trading statement

‘Like many others in the market, Hiscox is experiencing increased claims activity in some US
casualty business. As noted in the July trading update, the Group strengthened reserves for
private company D&O underwritten by Hiscox USA. While the vast majority of lines are
performing in line with expectations, the Group is taking an increasingly cautious approach,
both to prior year reserve development and current year loss picks in anticipation of higher
claims.

Due to the combined impact of increased claims activity and a cautious approach to reserve
development, the Group expects the full year combined ratio for Hiscox Retail to be between
97-99%. The Group continues to target a combined ratio range for Hiscox Retail between 90-
95% over the medium term.’

Beazley -8.11.2019 – Q319 Trading statement

‘We have been anticipating a more difficult claims environment in areas such as directors &
officers, employment practice liability and healthcare liability in recent years. As such we have
been adjusting our underwriting for several years in these areas and began opening at a higher
reserve position at the start of 2018.

We have seen an increase in claims within our directors & officers, employment practice liability
and healthcare liability books and whilst we expect to deliver overall reserve releases from our
specialty lines and cyber & executive risk divisions, we anticipate that these will be at a lower
level than in previous years.’

December 11, 2019 Kamran Hossain, +44 20 7029 0847; kamran.hossain@rbccm.com 6

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 Insurance
Beazley PLC

We believe that this issue will stick around in 2020

We expect that the social inflation issue will continue throughout 2020. There is nothing clearly
on the horizon to stop the trend and therefore we can see this continuing. As a result, we
expect that companies will continue with a cautious reserving view in the next year.

Little economic long run impact but reported results could be impacted in the near
term
Whilst this issue has the potential to impact earnings in the near term, ultimately we expect
reserve conservatism being baked in at present to emerge as higher levels of reserve releases
in future years. Economically, there is very overall impact, but in the near term, results could
suffer. If we look at reserve triangles for Beazley, it is clear that the company has been taking
a more cautious view on its loss picks in recent years.

Exhibit 9: Beazley has been taking a more cautious view to its loss picks in recent years
Gross of reinsurance - Specialty Net of reinsurance - Specialty
75% 75%
Increase in gross
ultimate loss ratios for Increase in net ultimate
70% 69.2% recent underwriting 70% loss ratios for recent
67.8% year of accounts 67.5% underwriting year of
Gross ultimate loss ($m)

Net ultimate loss ($m)

65.1% 65.7% accounts

65% 63.6% 65% 64.3% 63.7%
63.5% 63.2% 63.5%
62.7% 62.8%
62.0% 62.1% 61.6%
60.5%
60% 60% 59.0%
57.8%
55.6%
55% 55%

50% 50%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Underwriting years Underwriting years

Source: Company reports, RBC Capital Markets

Note: The Specialty includes Cyber & Executive risk

Trust the track records

For a company such as Beazley, which has the greatest exposure to these lines, the company
clearly has excellent expertise in underwriting these lines.

Following the financial crisis, Beazley increased its loss picks in affected lines of business to
reflect the expected impact on claims. These claims ultimately did not emerge and the
company was able to release the reserves later on. This is demonstrated in exhibit 10 below.

December 11, 2019 Kamran Hossain, +44 20 7029 0847; kamran.hossain@rbccm.com 7

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 Insurance
Beazley PLC

Exhibit 10: Specialty lines incurred claims remain in line with expectations
140%
Two Three Four Five Six Seven to latest ULR
120%

Net incurred loss ratio (%)

100%

80%

60%

40%

20%

0%
1997-20

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017
Source: Beazley, RBC Capital Markets

In addition, we expect Beazley to move its reserve buffer back to the middle of the
range
Beazley is the only remaining listed insurance company in Europe that shows a view of the
prudence that it has built into reserves. The only other company that used to show this ratio
was Novae, a Lloyd’s peer that was bought by Axis in October 2017. This disclosure allows the
market to understand what level of conservatism Beazley has taken out of its reserves versus
the level it includes.

Reserve surplus had fallen towards the bottom of the target range 2017-19
The range that Beazley discloses does not use the traditional actuarial best estimate definition
but rather their own actuarial estimate assumption which is a more conservative measure.
Beazley aims for its surplus to be between 5-10% with the level close to the mid-point of the
range 2008-16.

Exhibit 11: Beazley aims for a reserve surplus above actuarial estimate of between 5-10%
12%
11%
10%
% above actuarial estimate

9%
8% 8.2% 8.2% 8.2%
7.9%
6.7% 7.5% 7.4% 7.4%
7% 6.9% 7.1%
6.7% 6.6%
6.4% 5.6%
6% 6.1%
5.2%
5%
5.0%
4%
3%
2%
2012

1H2019
2003

2004

2005

2006

2007

2008

2009

2010

2011

2013

2014

2015

2016

2017

2018

Source: Beazley, RBC Capital Markets

December 11, 2019 Kamran Hossain, +44 20 7029 0847; kamran.hossain@rbccm.com 8

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 Insurance
Beazley PLC

The surplus has reduced in recent years

The surplus has reduced in recent years from a level as high as 8.2% in 2016 falling to 5.0% at
the end of 2017 and remaining relatively close to this level in the latest set of result (1H19
5.2%).

Movements in the size of the buffer in theory shape reported profitability. If the level of the
surplus is reduced, this would benefit the combined ratio, and if the level increases, this
worsens the combined ratio. We show our view of the impact of movements in the reserve
surplus on the combined ratio in the exhibit below.

Exhibit 12: The impact of reserve movements on Beazley’s combined ratio 2005-18

2.5%
2.0%
Impact on combined ratio of reserve margin

2.0% 1.6%
1.5% 1.2%
1.0% 0.8%
1.0%
0.3%
0.5%
0.0%
move

(0.5%) (0.2%)
(0.4%) (0.5%)
(1.0%)
(0.9%) (0.8%)
(1.5%) (1.1%)
(2.0%) (1.6%)
(2.5%) (2.3%) (2.4%)
(3.0%)

1H2019
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018
Source: Beazley, RBC Capital Markets

The buffer is important as it is a driver for future reserve releases

The level of reserve surplus matters as the higher the buffer, the greater the potential reserve
releases going forward. As a result, we expect that management will continue to try to bring
its reserve buffer back towards the middle of the target range.

Exhibit 13: Impact on combined ratio from increasing reserve surplus

Source: RBC Capital Markets estimates

December 11, 2019 Kamran Hossain, +44 20 7029 0847; kamran.hossain@rbccm.com 9

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 Insurance
Beazley PLC

Based on our calculations, the net impact of moving the reserve surplus to the middle of the
range will be to add approximately 2.6ppt to the 2020 combined ratio.

Moving combined ratio estimate to 94% for 2020E

As a result, of both increased conservatism on loss picks and the cost of moving the reserve
surplus back towards the middle of the range, we expect Beazley to aim for a mid 90s
combined ratio in 2020E. We move our combined ratio to 94% for 2020E.

We move our reserve release assumptions to factor in a recovery back to average levels in
2022E.

Exhibit 14: We expect reserve releases to be lower than historical averages until 2022E

Source: Beazley, RBC Capital Markets estimates

Prices increasing should benefit future years

For now, pricing is reacting strongly, with longer tail lines now seeing substantial price
increases reflecting a higher degree of claims uncertainty in the market. Looking ahead, we
expect that price increases in most lines of business should help the business to post improving
margins but for now we see this as more of a 2021 story.

Exhibit 15: Long tail lines will see strong price increases in 2020

Public D&O 18% 50%

Private D&O 5% 35%

Class of business

Excess liability 0% 25%

E&O - large law firms 10% 20%

Employment practices liability 5% 15%

Errors and omissions 5% 10%

General liability 3% 8%

-10% 0% 10% 20% 30% 40% 50% 60%

2020 rate prediction
Source: Willis Tower Watson, RBC Capital Markets

December 11, 2019 Kamran Hossain, +44 20 7029 0847; kamran.hossain@rbccm.com 10

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 Insurance
Beazley PLC

Updating estimates and price target

 We update our estimates to take into account a lower level of reserve releases in 2020 &
2021 than we had previously expected.
 We increase our 2020E combined ratio to 94% and our 2021E combined ratio to 91%.
These changes reduce our book value estimate 5% for 2020E and 5% for 2021E.
 Due to our reduced book value estimate, we reduce our price target to 600p (prev 650p).

Exhibit 16: Summary of estimate changes

Beazley ($ cents)
Year 2019E 2020E 2021E
Book value per share New 302 336 384
Old 302 353 406
Change (%) 0.0% (4.8%) (5.5%)
Tangible book value per share New 279 313 361
Old 279 330 383
Change (%) 0.0% (5.1%) (5.8%)
ROE New 13.3% 15.4% 19.1%
Old 13.3% 20.1% 19.9%
Change (ppts) 0.0% (4.8%) (0.8%)
Earnings per share New 38 48 68
Old 38 65 74
Change (%) 0.0% (25.7%) (8.9%)
Dividend incl. specials (GBp) New 12.4 17.1 23.9
Old 12.4 18.1 23.9
Change (%) 0.0% (5.7%) (0.2%)
Source: RBC Capital Markets estimates

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 Insurance
Beazley PLC

Insurance Beazley PLC (BEZ LN): Summary of financials

Kamran Hossain Anthony Yang
+44 20 7029 0847 +44 20 7002 2858
kamran.hossain@rbccm.com anthony.yang@rbccm.com
Share price (GBp) Market cap (£m) Priced at
535 2,799 06-Dec-2019
Year to 31 December
P&L ($m) 2018A 2019E 2020E 2021E Underwriting margins (%) 2018A 2019E 2020E 2021E
Gross written premiums 2,615 2,931 3,260 3,532 Loss ratio 59% 62% 56% 52%
Net written premiums 2,249 2,491 2,832 3,051 Expense ratio 40% 39% 38% 38%
Net earned premiums 2,085 2,281 2,685 2,881 Combined ratio 98.5% 101.0% 94.0% 90.5%
Loss expense (1,228) (1,420) (1,491) (1,503) o/w reserve release (5.5)% (3.7)% (5.2)% (8.3)%
Underwriting expenses (813) (879) (1,032) (1,104)
Growth rates (%) 2018 2019 2020 2021
Investment result 41 254 127 135 Gross written premium 11.6% 12.1% 11.2% 8.3%
Other income/expenses 34 33 37 40 Net written premium 13.6% 10.8% 13.7% 7.7%
Profit before tax 76 242 302 426
Tax (8) (39) (45) (65) Valuation multiples 2018 2019 2020 2021
Net income 68 203 257 362 P/E (Net income) 54.8 18.4 14.5 10.3
P/BV 2.5 2.3 2.1 1.8
RoE (%) 4.6% 13.3% 15.4% 19.1% P/TBV 2.7 2.5 2.2 1.9
RoTE (%) 5.0% 14.5% 16.6% 20.4% Dividend Yield 2.2% 2.3% 3.2% 4.5%

Segment premium ($m) 2018A 2019E 2020E 2021E

Marine 285 302 320 333 Valuation
PAC 239 276 296 305
Property 415 412 436 445 2020 BVPS ($) 3.4
Reinsurance 207 219 232 237 USD:GBP FX rate 1.3
Specialty 756 892 1,026 1,149 2020 BVPS (£) 2.6
CyEx 714 830 950 1,064 Multiple (x) 2.3
Price Target (GBp) 600

Balance sheet ($m) 2018A 2019E 2020E 2021E RBC Gross Written Premium Split, 2019
Investments 4,716 4,964 5,229 5,567
Reserves 5,456 5,598 5,747 5,898
Marine
Debt 357 354 354 354 10%
IFRS Shareholder's equity 1,467 1,584 1,763 2,016 CyEx PAC
29% 9%

Per Share Data 2018 2019 2020 2021 Property

Net income EPS ($) 0.13 0.38 0.48 0.68 13%
Dividend (inc special) (£) 0.12 0.12 0.17 0.24
BV ($) 2.80 3.02 3.36 3.84 Reinsurance
Tangible BV ($) 2.56 2.79 3.13 3.61 7%
Specialty
32%

For RBC Capital Markets Insurance valuation comparatives, recent research, and other data please see RBC Insight or Bloomberg <RBCR> GO
Source: RBC Capital Markets estimates, company reports, Reuters

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Valuation
We derive our price target of 600p by applying a 2.3x book value multiple on the 2020E book
value per share translated at the current USD:GBP exchange rate. Our 2.3x book value multiple
is based on historical trading multiple of the company and the sector as well as considerations
of future growth of the company and the scarcity value attached to the Lloyd’s insurers. Our
price target supports our Outperform rating.

Risks to rating and price target

• Significant catastrophe losses: Like the majority of the Lloyd’s and London market insurers,
Beazley has significant exposure to natural catastrophe losses. Any sign that Beazley incurs
any losses outside of its risk appetite would lead us to review our recommendation.
• Negative reserve development: Beazley writes some business with a tail of around six years.
Due to the length of the liabilities taken on by Beazley, it may not always be possible to
calculate the cost of future claims accurately.
• Systemic casualty claims in the US: Via its specialty lines business, Beazley has exposure to
liability business in the United States. This market has produced large underwriting losses
in the past due to systemic casualty claims. Beazley purchases reinsurance, which protects
against these types of events, and should be relatively well protected should any event
crystallise.

Company description
Beazley is a specialty insurance business with a well-diversified portfolio. Primary insurance
lines make up 89% of the portfolio with the remaining 11% in reinsurance. After listing on the
London Stock Exchange in 2002, Beazley established Syndicate 2623 to underwrite in parallel
with syndicate 623. Beazley also has three other syndicates, 3623, 3622, and 6107, which are
backed by the Lloyd’s market rating of A from AM Best and A+ from Standard and Poor’s.
Beazley employs around 862 staff worldwide with operations in the Lloyd’s market, Australia,
Germany, France, Norway, Hong Kong, Singapore, and the US.

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Required disclosures
Non-U.S. analyst disclosure
Kamran Hossain, Anthony Yang, Gordon Aitken and James Pearse (i) are not registered/qualified as research analysts with the
NYSE and/or FINRA and (ii) may not be associated persons of the RBC Capital Markets, LLC and therefore may not be subject to
FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a
research analyst account.
Conflicts disclosures
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including
total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated
by investment banking activities of the member companies of RBC Capital Markets and its affiliates.

Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in,
this report. To access current conflicts disclosures, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/
DisclosureLookup.aspx?entityId=1 or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza,
29th Floor, South Tower, Toronto, Ontario M5J 2W7.
Explanation of RBC Capital Markets Equity rating system
An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned
to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to the
analyst's sector average.
Ratings
Top Pick (TP): Represents analyst's best idea in the sector; expected to provide significant absolute total return over 12 months
with a favorable risk-reward ratio.
Outperform (O): Expected to materially outperform sector average over 12 months.
Sector Perform (SP): Returns expected to be in line with sector average over 12 months.
Underperform (U): Returns expected to be materially below sector average over 12 months.
Restricted (R): RBC policy precludes certain types of communications, including an investment recommendation, when RBC is
acting as an advisor in certain merger or other strategic transactions and in certain other circumstances.
Not Rated (NR): The rating, price targets and estimates have been removed due to applicable legal, regulatory or policy constraints
which may include when RBC Capital Markets is acting in an advisory capacity involving the company.
Risk Rating
The Speculative risk rating reflects a security's lower level of financial or operating predictability, illiquid share trading volumes,
high balance sheet leverage, or limited operating history that result in a higher expectation of financial and/or stock price volatility.
Distribution of ratings
For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories
- Buy, Hold/Neutral, or Sell - regardless of a firm''s own rating categories. Although RBC Capital Markets'' ratings of Top Pick/
Outperform, Sector Perform, and Underperform most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings
are not the same because our ratings are determined on a relative basis.
Distribution of ratings
RBC Capital Markets, Equity Research
As of 30-Sep-2019
Investment Banking
Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [Top Pick & Outperform] 748 51.73 208 27.81
HOLD [Sector Perform] 618 42.74 126 20.39
SELL [Underperform] 80 5.53 3 3.75

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Rating and price target history for: Beazley PLC, BEZ LN as of 09-Dec-2019 (in GBp)
07-Dec-2016 06-Apr-2017 26-Jun-2017 29-Aug-2017 20-Sep-2017 29-Sep-2017 25-Oct-2017 26-Mar-2018 05-Jul-2018 09-Jul-2018 28-Aug-2018 29-Oct-2018
Rtg:O Rtg:O Rtg:O Rtg:O Rtg:O Rtg:O Rtg:O Rtg:O Rtg:O Rtg:TP Rtg:TP Rtg:TP
Target: 475.00 Target: 500.00 Target: 525.00 Target: 575.00 Target: 550.00 Target: 525.00 Target: 550.00 Target: 625.00 Target: 675.00 Target: 675.00 Target: 700.00 Target: 675.00

650

600

550

500

450

400

350
Q3 2017 Q1 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3 2020
06-Dec-2018 20-Mar-2019 19-Jul-2019 08-Nov-2019
Rtg:TP Rtg:TP Rtg:TP Rtg:TP
Target: 650.00 Target: 700.00 Target: 675.00 Target: 650.00

Legend:
TP: Top Pick; O: Outperform; SP: Sector Perform; U: Underperform; R: Restricted; I: Initiation of Research Coverage; D: Discontinuation of Research Coverage;
NR: Not Rated; NA: Not Available; RL: Recommended List - RL: On: Refers to date a security was placed on a recommended list, while RL Off: Refers to date
a security was removed from a recommended list; Rtg: Rating.
Created by: BlueMatrix

References to a Recommended List in the recommendation history chart may include one or more recommended lists or model
portfolios maintained by RBC Wealth Management or one of its affiliates. RBC Wealth Management recommended lists include
the Guided Portfolio: Prime Income (RL 6), the Guided Portfolio: Dividend Growth (RL 8), the Guided Portfolio: ADR (RL 10),
and the Guided Portfolio: All Cap Growth (RL 12). RBC Capital Markets recommended lists include the Strategy Focus List and
the Fundamental Equity Weightings (FEW) portfolios. The abbreviation 'RL On' means the date a security was placed on a
Recommended List. The abbreviation 'RL Off' means the date a security was removed from a Recommended List.
Equity valuation and risks
For valuation methods used to determine, and risks that may impede achievement of, price targets for covered companies, please
see the most recent company-specific research report at https://www.rbcinsightresearch.com or send a request to RBC Capital
Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.
Beazley PLC
Valuation
We derive our price target of 600p by applying a 2.3x book value multiple on the 2020E book value per share translated at the
current USD:GBP exchange rate. Our 2.3x book value multiple is based on historical trading multiple of the company and the sector
as well as considerations of future growth of the company and the scarcity value attached to the Lloyd’s insurers. Our price target
supports our Outperform rating.

Risks to rating and price target

• Significant catastrophe losses: Like the majority of the Lloyd’s and London market insurers, Beazley has significant exposure
to natural catastrophe losses. Any sign that Beazley incurs any losses outside of its risk appetite would lead us to review our
recommendation.
• Negative reserve development: Beazley writes some business with a tail of around six years. Due to the length of the liabilities
taken on by Beazley, it may not always be possible to calculate the cost of future claims accurately.
• Systemic casualty claims in the US: Via its specialty lines business, Beazley has exposure to liability business in the United States.
This market has produced large underwriting losses in the past due to systemic casualty claims. Beazley purchases reinsurance,
which protects against these types of events, and should be relatively well protected should any event crystallise.
Conflicts policy
RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request.
To access our current policy, clients should refer to
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 Insurance
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https://www.rbccm.com/global/file-414164.pdf
or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South
Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time.
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subject companies on which the Firm currently provides equity research coverage. Research Analysts may, from time to time,
include short-term trade ideas in research reports and / or in SPARC. A short-term trade idea offers a short-term view on
how a security may trade, based on market and trading events, and the resulting trading opportunity that may be available. A
short-term trade idea may differ from the price targets and recommendations in our published research reports reflecting the
research analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons,
methodologies and/or other factors. Thus, it is possible that a subject company's common equity that is considered a long-term
'Sector Perform' or even an 'Underperform' might present a short-term buying opportunity as a result of temporary selling pressure
in the market; conversely, a subject company's common equity rated a long-term 'Outperform' could be considered susceptible
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their residents, as well as the process for doing so. As a result, the securities discussed in this report may not be eligible for sale in some jurisdictions. RBC Capital
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